Barrons : This Stock Fund Has Soared More Than 30% This Year. Here’s How.

This Stock Fund Has Soared More Than 30% This Year. Here’s How.

For 25 years, Mitch Rubin has plied an increasingly unfashionable trade—picking individual stocks. Yet he has done it with exceptional skill, and over the past couple of years, his fund, which can take both long and short positions, has been a rare outperformer among actively managed funds beating the market.

So far this year, RiverPark Long/Short Opportunity (ticker: RLSFX) is up 36.6%, beating the average long/short fund and the S&P 500 index by a wide margin. For the past three years, the fund is up 18.2% a year on average. The S&P 500 is up 6.7% and 13%, respectively. With an expense ratio of 2%, it isn’t a cheap fund, and assets are just $330 million. This year, that expense ratio was worth it.

Rubin does it by buying compelling businesses that can capitalize on changing trends in society and, in turn, double or triple cash flow in the coming years. He typically owns these stocks for five to 10 years.

For each business, Rubin builds full seven-to-10-year models. That requires scouring 10-K and 10-Q filings, focusing on excess free cash flow, and looking for companies with a massive change in their structural advantage—“the ability to grow a ton or shrink a lot.” When he finds companies whose business models will languish, he takes a short position—which means borrowing shares to then sell them, in a bet their price will fall. He will hold that short for up to three years.

The market’s precipitous decline in March, as the Covid-19 pandemic gathered steam, created opportunities to buy and sell those companies. “No matter what the market is, there are businesses that will thrive and fail structurally, and our business is to find them at good prices,” said Rubin in an interview from his home office in upstate New York, where he and his family decamped during the pandemic.

“Before Covid, we believed we were entering a period of massive destruction and innovation—many innovators were taking share and many incumbents were poorly positioned,” Rubin says. The pandemic “massively accelerated” the trend, “showing which businesses are prepared for a digital world and which aren’t.” While Covid-19’s economic impact was enormous, it would have been even more destructive to companies six years ago, without today’s cloud and work-from-home technology. For hotels and restaurants, the hope is that Covid-19 is a one-off. But for car-rental businesses being hit by ride-sharing, or movie theaters that were already seeing consumers buy fewer tickets, “this just accelerated their demise,” says Rubin.

An affable 54-year-old, Rubin was reared in New Jersey, where his father sold textiles and his mother worked as a nurse. Rubin helped out with the household finances, cutting lawns and delivering pizza and newspapers. He went to college in Michigan, where he studied economics and political science, and then attended law school at Harvard. Afterward, he became a corporate attorney working on leveraged buyouts and private-equity deals.

Throughout, he was fascinated by the big trends animating society and the economy. Laws changed in response; so did businesses. After law school, Rubin read all the books about investing that he could by renowned investors Warren Buffett, Benjamin Graham, and Phil Fisher, a proponent of owning a concentrated fund of stocks with strong growth prospects. He left corporate law for Smith Barney, where he researched emerging growth stocks before joining Baron Capital, where investor Ron Baron taught him how to find “great teams and own them for a long period.” In 2009, he formed his own firm, RiverPark Advisors, along with Baron Capital’s former president, Morty Schaja. He is chief investment officer and managing partner of RiverPark Funds.

During the March downturn, Rubin “traded a ton” and was able to “double down and buy,” particularly when the Federal Reserve and Congress intervened to shore up the economy. While leveraged financial institutions were the epicenter of the last financial crisis, the pandemic exposed risks in leveraged travel companies, airlines, rental-car companies, casinos, and cruise ships. Rubin shorted them.

Today, the fund has increased its holdings in social-media companies. All have become critical for advertisers as consumers spend more of their time on these platforms. Facebook (FB), which is 2.8% of the total portfolio, has become hugely relevant in a mobile world. Even as some advertisers have withdrawn to protest the platform’s handling of hate speech and misinformation, and Facebook has invested more on security, Rubin expects profit margins of around 50% for the year on an earnings before interest, taxes, depreciation, and amortization basis.

Rubin boosted holdings of Pinterest (PINS), now 3% of the total portfolio, and Snap (SNAP), now at 2.9%, both of which are increasing focus on better tools for advertisers to measure the return on ad dollars more accurately. Both stocks are also cheaper than Facebook, which is currently valued at $400 per daily average user. By contrast, Snap is valued at $144.

Pinterest, which reports only monthly active users, is valued at $47, versus Facebook at $263 on the same measure. Rubin reckons that if Snap and Pinterest grew revenues to Facebook’s current levels, Snapchat’s revenues would grow fivefold and Pinterest’s, sevenfold.

Another favorite stock is Twitter (TWTR). Rubin notes that while CEO Jack Dorsey may have been distracted by running two businesses, Twitter is valued at $141 per daily average user, notably cheaper than Facebook using that metric.

Rubin has found short opportunities too, including commercial landlords like Simon Property Group (SPG), Boston Properties (BXP), SL Green Realty (SLG), and Vornado Realty Trust (VNO). Even before the pandemic, many landlords suffered from shrinking retail square footage and overbuilding. They are also heavily leveraged. Now, “Covid represents a potential game-changer in long-term city office demand,” says Rubin.

Barrons : Seeking Stock-Market Bargains? Try Europe and Japan

Seeking Stock-Market Bargains? Try Europe and Japan

Cast aside as old and tired, European and Japanese stocks rarely get a second glance from growth-obsessed investors mesmerized by U.S. technology stocks.

But that’s exactly why U.S. strategists and fund managers see opportunity in these forgotten lands. Attractive valuations and even overlooked growth stocks can be found in these markets.

Moreover, many European countries and Japan were able to get a handle on the coronavirus before recent flare-ups, and are also poised to benefit early from a recovery in the global economy.

Barron’s has identified five such growth stocks and three exchange-traded funds for investors to consider. More on them in a moment.

Some of the traits that led to a lost decade for foreign stocks are about to work in their favor: Lighter on the highflying technology stocks that have powered the U.S. market, European and Japanese markets have a heavier weighting in companies tied to the economy’s performance, such as financials, materials, and industrials.

“A recovery favors more value-oriented cyclical markets, and European and Japanese markets are much more geared to global growth and more export-oriented than the U.S., so we expect them to benefit into 2021,” says Chris Dyer, director of Global Equity for Eaton Vance and manager of the Calvert International Equity fund. “We are encouraging clients to either diversify away from the U.S. or just rebalance allocations.”

The urge to do some portfolio globe-trotting comes in large part from a growing wariness about American stocks. That is a shift, given how dominant the U.S. market has been: Over the past decade, the S&P 500 index has eviscerated the MSCI World ex-USA index, returning 13.9% a year, on average, compared with just 5.5% for the rest of the world.

Yet unease over the degree to which tech stocks account for the U.S. rally and uncertainties about the U.S. election weigh on money managers’ minds, as does the escalation in U.S. tensions with China. A weaker U.S. dollar is also a concern.

Above all, U.S. stocks are pricey. Based on current valuations, U.S. stocks are priced to deliver half a percent of real, or inflation-adjusted, return for the next decade, while Europe and Japan are offering 10 times that, at a real return of about 5%, says Robert Arnott, founder of Research Affiliates.

“The general view is that Europe is past its prime,” Arnott tells Barron’s. “Its demographic challenges are self-evident, and it’s a slow-growth future. Yes, but there’s still growth and terrific yields—3% to 4% on stocks—and it will rise with GDP growth. The narrative is creating the investment opportunity.”

Valuation is also luring U.S. investors to Japan. It was one of the main reasons that Warren Buffett recently invested $6 billion in five Japanese trading companies.

Using a Shiller price/earnings ratio, European stocks are trading at almost half that of the S&P, which trades at 31 times. Japanese stocks have a Shiller P/E of 19. Even more striking: The market value of U.S. technology stocks eclipses that of the entire European market.

If worries about the valuations of some of the U.S. technology darlings intensifies, BlackRock Multi-Asset Income fund manager Michael Fredericks says that investors may seek out companies with respectable growth trading for less—leading them to Europe and other parts of the world.

Over the summer, he dialed back on what had been a strong preference for the U.S., with some of that money going to Europe and emerging markets.

Recent fund flows suggest that others are beginning to make similar moves, with positive flows into European and global equity funds over the past eight weeks offsetting outflows elsewhere in developed markets, according to EPFR Global.

The outlook for Europe and Japan will depend, as it does for all economies, on the extent to which the coronavirus pandemic can be contained. Still, many European and Asian nations have been more successful than the U.S. in handling the virus, which spurs confidence that they would be better placed to deal with another wave—including a recent spike in cases in parts of Europe.

Europe’s response to the pandemic is notable for another reason: The 750 billion euro ($885 billion) European Recovery Fund is a groundbreaking development. It taps the wealthier countries in the European Union to help those less rich without requiring them to slash pensions and raise taxes, as was the case in the past.

“It signals greater cohesion and goes against the concerns the market had about the fragility of the European Union for the last decade, and should argue for a lower equity risk premium, which could help performance versus other markets,” Dyer says.

The economies of Europe and Japan aren’t going to be highfliers, but they offer distinct niches of growth. Take luxury goods, where Europe is home to leaders Kering (ticker: KER.France) and LVMH Moët Hennessey Louis Vuitton (MC.France).

Or cleantech: Danish wind-farm developer Ørsted (ORSTED.Denmark) may be unfamiliar to most Americans, but its stock has outpaced some U.S. tech highfliers, rising an average of 38% a year since going public in June 2016.

In Japan, automation giant Keyence (6861.Japan) generates some of the highest operating margins among global industrial companies, notes Sophia Li, Hong Kong–based manager of a $300 million Japan equity strategy for Asian and emerging markets specialist FSSA Investment Managers.

Barron’s talked with large global and international managers about stocks they have picked up in Europe and Japan. Here are five:

TeamViewer (TMV.Germany), which allows people to share technology and presentations across multiple devices, is a European work-from-home winner as Zoom Video Communications (ZM) is in the U.S. The German company reported a 59% increase in billings in the first half of 2020, to €226 million.

In some ways, TeamViewer is more attractive than Zoom.

“For companies with exceptional secular growth prospects that address huge markets, such as TeamViewer, one can still make a valuation argument grounded in earnings and cash flow, and we don’t have to resort to newfangled metrics like price-to-sales that may turn out to rest on shaky foundations for companies such as Zoom,” says Carl Kawaja, co-manager of the $167 billion EuroPacific Growth fund.

TeamViewer trades at 36 times his team’s 2023 estimate for earnings while Zoom is trading at 36 times sales estimates. Though not cheap, analysts also still see upside. On FactSet, analysts’ average price rating for TeamViewer is €54.46, implying about 30% upside in the next 12-months.

For the wealthy, whose stock portfolios have risen even as they have had to cancel vacations and the like, spending on luxury goods has remained strong. Indeed, the order book of Italian auto maker Ferrari (RACE) actually rose in the second quarter. That resiliency has made Ferrari a more stable, low-double-digit-growth-compounding long-term holding, says Tom Davis, co-manager of the $5.7 billion PGIM Jennison Global Opportunities fund.

Ferrari hasn’t been immune to the pandemic. Manufacturing shutdowns and disruptions at suppliers earlier in the year contributed to depressed sales and earnings. But Davis says the company plans to catch up on the delayed production in the remainder of the year and into 2021. At 41 times 2021 estimated earnings, the stock may look luxury-priced, but it reflects some of the disruptions.

Ferrari has margins on its earnings before interest, taxes, depreciation, and amortization, or Ebitda, that are north of 30%—double that of other auto makers. Its innovation has set it apart, and the next couple of years, especially, should benefit from its earlier spending as the company hybridizes most of its lineup and launches a larger-size Ferrari utility vehicle that could woo new customers in emerging markets.

A majority of the sales at Spain’s Amadeus IT Group (AMADY), one of the world’s largest travel-reservations company, were tied directly to air passenger volumes. Not surprisingly, the company, which also handles technology for airline and hotel companies, has taken a beating, with shares falling nearly 30% this year.

But the company strengthened its balance sheet early in the crisis with a stock offering. It should have enough cash and credit facilities to withstand a 90% drop over about two years in global airline passenger numbers relative to pre-Covid levels, estimates Calvert’s Dyer.

Along with that liquidity, its strong and differentiated technology positions it well for a travel recovery. Chinese domestic air traffic is beginning to recover, and most fund managers expect a sharper bounceback once the virus is under control elsewhere.

Amadeus also has the opportunity to gain market share as travel companies—especially smaller hotels that dominate the European market—look to outsource their technology as they cut costs, says John Remmert, co-manager of the $2.4 billion Franklin International Growth fund. The company is like Sabre (SABR) in the U.S., he adds.

As Amadeus emerges from the downturn, Calvert’s Dyer sees the company generating 30% earnings growth through 2025 from depressed 2020 levels. That would translate to a free-cash-flow yield of 7% in five years, which Dyer thinks could support steady mid- to high-teens percentage gains in the stock. The shares trades at 22 times expected 2022 earnings.

Instead of traveling, some people are seeking out “solitary leisure” activities like biking and fishing. That has been a boon for Japan’s Shimano (SMNNY), which sells bicycle components and fishing gear. Commuters in large cities are also riding bikes rather than taking public transport. It is a trend that money managers like Nick Niziolek, Calamos Investments’ co-chief investment officer, see continuing over the medium term as consumer preferences change.

The demand has created a shortage of bikes globally. While the delivery of some orders could be delayed to next year because of capacity constraints, UBS analyst Ally Chen expects many new bike-product launches in 2021, which should bolster sales growth for Shimano. The company has 70% of the market share in producing sports-bicycle components.

While the stock is trading at 33 times next year’s earnings, that is still a bargain compared with some other pandemic beneficiaries such as Peloton Interactive (PTON). Chen sees additional upside of almost 20%, with a price target of 25,450 yen, according to a recent client note.

As Shimano benefits from people trying to adjust to the pandemic, Sartorius (SRT.Germany) has received a boost as researchers rush to get life back to normal with a vaccine. The German laboratory supplier plays a crucial role in the research and commercial production of biotech and pharmaceutical products, providing bioreactors, fermenting tanks, and filters for the production and process of researching and producing drugs. among other things.

“We view Sartorius as one of the key ‘arms dealers’ in the pandemic, as they are likely to supply critical production equipment to nearly all of the leading Covid-19 vaccine manufacturers,” says David Eiswert, manager of the $4.8 billion T. Rowe Price Global Stock fund. “The company’s focus on single-use technologies is also a key enabler of the rapid ramp-up in production capacity to support a global rollout of a vaccine.”

While the stock is trading at almost 36 times enterprise value to adjusted Ebitda, a premium to its three-year average, Eiswert says it is far cheaper than pure plays like Repligen (RGEN), trading at almost double that.

Eiswert notes that Sartorius’ organic growth will probably accelerate to the fastest rate in at least a decade over the next 12 to 24 months, from 18% in 2019. He sees greater adoption of single-use technologies over the next five years as the industry shifts toward more biologics, vaccine research potentially gets renewed life, and there is a push to cut costs. That could set up Sartorius for the type of strong, long-term growth that investors might not have associated with developed markets such as Europe.

Investors who prefer a broader way to get exposure to developed markets outside the U.S. might want to try the iShares MSCI EAFE exchange-traded fund (EFA). Other options include the Vanguard FTSE Europe (VGK) and the iShares MSCI Japan (EWJ) ETFs.

Cheap valuations and an improving global economy could help international stocks snap out of their lost decade. And as investors take a closer look, they might even find some companies—and stocks—with exciting growth.

Barrons : Covid Is Making Cash History. How to Profit From the Digital-Payment F

Covid Is Making Cash History. How to Profit From the Digital-Payment Future.

Sometime back in March, the Federal Reserve began quarantining cash bills arriving from Asia. The move was meant to protect Americans from the coronavirus, but it wasn’t entirely necessary. Cash usage was already at an all-time low. Covid-19 has just hastened the decline, with Americans at first stuck at home and now still wary of the close proximity required for the physical exchange of bills. The volume of ATM cash withdrawals tumbled at least 12% in the second quarter, according to Wall Street research firm MoffettNathanson.
Digital payments have ably filled in, and those cash withdrawals are unlikely to return. In fact, the rise of digital payments is one of the few Covid-19 trends all but guaranteed to last long after a vaccine. And that creates significant opportunities for a host of tech-focused payment companies.
“Because of Covid, consumers don’t want to touch anything, and it’s creating a virtuous cycle for us,” says Mastercard president and incoming CEO Michael Miebach.
It’s not just that the physical economy is getting nudged online. Consumer and business behavior is shifting, perhaps permanently. Millennials who loathed cash before the pandemic are now even more likely to “Venmo” one another cash for last night’s pizza and beer. Millions of seniors, stuck at home, are going cashless for the first time. Retail stores and restaurants are developing online sales channels, while governments worldwide are shifting to cards for disbursements to consumers and businesses. Outside the U.S., India’s transition to a cashless society is accelerating, while Sweden is closer to becoming the world’s first cashless country. One of the hottest start-ups in Silicon Valley these days is Stripe, a payments technology company valued at $36 billion.

None of these trends have been lost on Wall Street. Digital payment stocks like PayPal Holdings (ticker: PYPL) and Square (SQ) have been some of the best performers in 2020, pushing their valuations to extremes. The elevated prices could pressure the stocks in the near term, keeping further gains muted. But for long-term investors, there’s still time to jump in.
“The stocks may breathe a bit from here, but we’re still likely underestimating the amount of e-commerce and digital banking shifts that will happen,” says Lisa Ellis, who covers payments for MoffettNathanson.
“Big Tech will continue to poke at payments. They all have the ability to write the code and do the algorithms. If you’re a small or midsize bank, you have no chance. ”
— Dave Ellison, a manager of the Hennessy Large Cap Financial fund
Cash represented 26% of all U.S. consumer payments in 2019, according to the Federal Reserve’s latest Diary of Consumer Payment Choice. That’s down from 31% in 2016.
The Fed updated the study this May, noting that consumers were holding on to more cash as a result of the pandemic, but few of them were spending it. Some two-thirds of respondents said that they had made no in-person payments from March 10 through early May, meaning cash isn’t changing hands.

As cash’s share of payments continues to fall, PayPal looks unstoppable. The stock, at a recent $176, fetches a steep 39 times 2021 earnings. But growth estimates are rising, and analysts keep hiking their price targets. Positive earnings revisions are more likely than negative ones, says Ellis, who expects the stock to gain 25% over the next year to $220 a share. Square is also capitalizing on digital payment trends, but its valuation poses an even higher hurdle. Following a 133% gain this year, the stock trades at 121 times estimated 2021 earnings.
The Future of Payments
Digital Pure Plays

Company / Ticker Recent Price YTD Change 2021E P/E 2021E EPS Growth Comment
PayPal Holdings / PYPL $175.79 63% 39 22% One of the clear winners in the shift to digital payments, including growth in areas like peer-to-peer, or P2P, payments and cross-border transactions.
Square / SQ 145.64 133 121 126 Cash App and direct deposit are fueling rapid growth but have pushed valuation to extremes.

Card Networks

Company / Ticker Recent Price YTD Change 2021E P/E 2021E EPS Growth Comment
Mastercard / MA 339.43 14 39 31 Expanding into data analytics, cybersecurity, P2P, and real-time payments. Would benefit from lifting of travel restrictions in Europe and elsewhere.
Visa / V* 205.27 9 35 16 Growth should rebound with an economic and travel recovery, just as company expands into new areas like "push" payments and business to business payments.

Payment Processors

Company / Ticker Recent Price YTD Change 2021E P/E 2021E EPS Growth Comment
Global Payments / GPN 181.48 -1 23 25 Partnering with Amazon to sell cloud-based services to banks and merchants; generates revenue from Netspend prepaid cards and benefits from bank tech-spending.
Fidelity National Information Services / FIS 148.81 7 22 22 Handles payment processing for merchants and banks. Following its Worldpay merger, it has won new accounts like Disney+.
*Sept. fiscal year end. E=Estimate.
Source: FactSet
The giant card networks, Visa (V) and Mastercard (MA), may have more upside over the next few months; their stocks are up less than 15% this year, well below their average annual gains of 25% to 30%. The card networks are seeing lower transaction volume due to the pandemic. Earnings estimates have fallen, pushing up near-term multiples. But the card networks are getting a boost from the decline of cash, and, as the connective tissue of the payments system, their networks are gaining in value. Both Visa and Mastercard are also expanding into high-growth areas such as peer-to-peer, or P2P; business-to-business, or B2B; business-to-consumer, or B2C; and cross-border remittances.
“Higher consumer demand is resulting in more merchants offering electronic payments, and with more transactions, there’s more demand for data analytics and cybersecurity,” says Mastercard’s Miebach.

Meanwhile, there are behind-the-scenes payment processors that get less attention but remain just as vital to the future of payments. Fidelity National Information Services (FIS) and Global Payments (GPN) both made major acquisitions last year: Fidelity National bought Worldpay, and Global Payments merged with Total System Services—adding scale, global reach, and diversified product lines. Both firms now handle payment processing for card issuers while also connecting traditional and online retailers to card networks and banks, a business known as merchant acquiring.

Both Fidelity National and Global Payments trade around 27 times 2020 earnings—far below multiples for pure-play e-commerce stocks like PayPal or Square, and at least a 33% discount to Visa and Mastercard.
Dave Ellison, a manager of the Hennessy Large Cap Financial fund, has shifted his portfolio away from traditional financial-services stocks into the payments and financial-technology, or fintech, space.
“These companies are positioned to continue to grow and take share in an industry where the alternatives are becoming less attractive,” he says.
Ellison, a longtime investor in bank stocks, says that he has soured on financial-services models that rely on deposits and lending. “I like the companies that are moving money around, rather than buying and selling money,” Ellison says. “Big Tech will continue to poke at payments. They all have the ability to write the code and do the algorithms. If you’re a small or midsize bank, you have no chance.”

While fintech valuations are rich, the multiples reflect the scarcity value of high-growth businesses in a low-growth climate. “ Amazon.com has been expensive for 23 years, and it has worked out,” Ellison says.
Another growth driver: the “silver tech” generation of older Americans going cashless for the first time, as Covid-19 changes habits. PayPal says that this demographic is now its fastest-growing user base—with considerably larger transaction sizes and purchasing power than those of younger generations. “There has been a massive adoption of e-commerce and mobile payments, and it has come with tremendous growth of new users,” says Deutsche Bank analyst Bryan Keane, who has a Buy rating on PayPal and a $234 target.
The trends we identified have only accelerated. With more people working from home, more purchases are being made online. Where physical transactions are happening, they increasingly rely on contactless methods, including credit and debit cards with wireless chips built in.

The convenience of those methods is one more incentive for consumers to drop cash. The shift to contactless cards increases the number of transactions per card by 20% to 30%, according to a J.P. Morgan report. Meanwhile, grocery stores, restaurants, and other businesses trying to retain customers amid social distancing are taking orders online and offering curbside pickup, where cash simply doesn’t work. E-commerce sales from businesses to consumers should grow 10% over the next year, the bank says. There is plenty of room for growth, since U.S. online shopping is still only 8.9% of total retail sales (versus 23% in China).
The Covid Cash CrashVisaSources: MoffettNathanson
%Purchase VolumeGross Debit Card VolumeCash Withdrawals2019'20-20-1001020
Indeed, one of the hottest e-commerce stocks this year is Shopify (SHOP), a platform for small businesses to create online storefronts, track sales, and provide fulfillment services. Shopify, which charges monthly fees, is riding the e-commerce surge, having doubled revenue in its most recent quarter to $714 million. However, at 394 times next year’s estimated earnings, the stock’s multiple is unforgiving, and its $105 billion market cap makes it larger than e-commerce firms eBay (EBAY), Etsy (ETSY), and Wayfair (W) combined.
Investors can use payments stocks to play the same trends underlying Shopify’s success. And Covid-19 has actually created a buying opportunity, relative to the rest of tech, at least.
Even as the scales tilt to e-commerce, weakness in consumer spending at physical locations is pressuring transaction volumes on card networks. Both Visa and Mastercard are expected to report revenue declines this year, their first annual declines as public companies.

The Covid Cash CrashMastercardSources: MoffettNathanson
%Purchase VolumeGross Debit Card VolumeCash Withdrawals'19'202018-20-100102030
Payment processors are also under pressure because of weakness in bricks-and-mortar retail. While payments volume is taking a breather this year, it should reaccelerate in 2021. And the addressable market is enormous: Digital payments worldwide totaled $15.7 trillion in 2019 out of $33.2 trillion in total consumer sales.
In the U.S., digital payments accounted for 68% of all retail purchases, rising steadily for years. Tack on business transactions, peer-to-peer exchanges, and other types of payments, and the market grows further.
Gary Norcross, CEO of Fidelity National, says that a structural shift to electronic payments has been nudged ahead a few years by the pandemic. “We’ve seen a significant decline in the use of cash,” he says.
Illustration by Alvaro Dominguez
The Digital Pure Play
PayPal is the clearest winner in the digital shift. The company added a record 21.3 million accounts in the second quarter, up 137% over the prior year, and ended the quarter with 346 million active accounts. “The world has accelerated from physical to digital across multiple industries,” CEO Daniel Schulman said recently. “Merchants are embracing a digital-first strategy, and these...are durable and meaningful tailwinds.”

PayPal, a pioneering online payment service that grew up with the rise of eBay, has expanded into cross-border money transfers with Xoom; it has taken a leading role in peer-to-peer with Venmo, exceeding 60 million accounts; and it’s signing up more online merchants via its Checkout button, which has a 79% share of the top 500 online retailers. Amazon Pay is No. 2 at 14%.
Wall Street expects PayPal’s earnings and revenue to both rise 20% this year, with sales hitting $21.3 billion. Analysts expect similar growth in 2021. The stock is up 68% in the past 12 months to a recent $181.
“The sustainability of their extraordinary growth is the key controversy on the stock,” says Ellis at MoffettNathanson. But PayPal remains one of her top picks, partly because PayPal continues to develop new revenue streams. One such area is Hyperwallet, PayPal’s instant-cash platform used by companies like Uber, DoorDash, and Etsy to pay independent contractors or vendors.
Bank of America analyst Jason Kupferberg recently reiterated his Buy rating on PayPal shares, noting that elevated e-commerce trends are persisting, and that the company is capitalizing on the shift to digital payments.

Operating margins are rising, he says, and he remains bullish, given PayPal’s “significant scarcity value and accelerated structural benefits related to the pandemic.” His $235 price target implies a multiple of 38 times estimated 2022 adjusted earnings.
The Card Networks
Visa and Mastercard are broader plays on the global economy, so their businesses haven’t seen a boost from Covid-19. Visa reported a 70% decline in cross-border travel-related revenue in August, compared with last year, but says it’s now seeing “encouraging signs” where borders have reopened. Analysts expect revenue to fall 5% at Visa and 7% at Mastercard this year.
The slowdowns should be temporary, though. A recovery in the global economy and travel should lift card transaction volumes next year. Ellis estimates that payment transaction volume will grow 14% in 2021, well above its average 10% growth rate from 2012 to 2019.
Visa is also capturing new payment flows in areas like P2P, and expanding services to banks, such as analytics and advanced security. The company should benefit from its acquisition of Plaid, a financial network that links customer bank accounts to apps like Venmo and Robinhood, for stock trading. Ellis is particularly upbeat on Visa Direct, which powers peer-to-peer apps like Square’s Cash App and cross-border money transfers.

Global Payments GrowthThe dollar value of purchases through card networks is expected to decline globallythis year, but growth should rebound in 2021 and beyond.Purchase Volume GrowthSource: MoffettNathansonNote: Dollar value is currency-neutral, excluding China.
%20192020E2021E2022E2023E2024E05101520
Ellis says that Visa Direct is “extraordinarily disruptive” because it’s replacing checks, cash, and wires.
“For most of our history, money flowed one way—from the consumer to merchant,” Visa Vice Chairman and Chief Financial Officer Vasant Prabhu told Barron’s. “Now, we can do merchants paying you, disbursements from businesses or governments to consumers, cross-border remittances, and medical and insurance payments. We’ve seen some extraordinary growth in those areas with Visa Direct, and we think this is a significant opportunity for a very long time.”
“”
— Mastercard CEO-elect Michael Miebach
Ellis values Visa’s stock—which recently traded at $205—at $250, or 37 times forward earnings, a modest premium to the current multiple of 35. That price/earnings ratio looks steep compared with the broader market, but it’s in line with Visa’s historical premium, supported by the company’s steady profit growth, averaging 19% a year, with operating margins around 70%.
Mastercard should benefit from similar dynamics, along with a strong push into business transactions and other payment flows.

CEO-elect Miebach says Mastercard’s cross-border e-commerce revenue has held steady. Europe is leading the way in a travel-and-entertainment recovery, and he sees modest improvements as travel recovers globally.
“People will want to make up for lost time to see customers and family,” Miebach says. “We believe travel will be a huge driver for us, but it will take some time.” He adds that Mastercard will stay acquisitive in areas like open banking, real-time payments, and cybersecurity. None of these businesses are as profitable as processing card transactions, but “the idea is not only to acquire a capability but also to drive scale and global reach,” he says.
UBS analyst Eric Wasserstrom likes the stock for those drivers, along with Mastercard’s potential to expand margins. The company invested heavily for years in services, diluting margins. But as these businesses scale up, that margin pressure should diminish, he says. It won’t happen overnight, but Mastercard’s 59% operating margins are well below Visa’s. “Mastercard in the near term will grow more quickly with improving margins,” he says.
He has a price target of $367, or 8% above the stock’s recent close.
The Payment Processors
If there’s a bargain bin in the industry, it’s the payment-processing stocks. Fidelity National, known as FIS, and Global Payments are in a revenue slump due to the retail slowdown, especially among small businesses and restaurants.
Before the pandemic, investors were counting on the stocks getting a lift from merger synergies, a valuation and margin boost from paying down debt, and ongoing acquisitions. The cost synergies appear intact, but the growth story has been put on hold, says Ellis.
“We’re in a healthier place than we could have imagined. ”
— Global Payments CEO Jeffrey Sloan
But FIS and Global Payments remain a key technology backbone for banks and merchants, generating steady processing revenue, and the merchant-acquiring business should pick up with an eventual revival of retail.
FIS should regain momentum with its Worldpay deal. The $48 billion acquisition vaulted FIS, traditionally a bank-processing company, into merchant-acquiring and e-commerce and gave it a larger international presence. Worldpay processes 40 billion transactions annually in 120 currencies. Payments for Disney +, the new streaming service, now go through FIS. CEO Norcross says the company won the Disney business in part because of Worldpay’s global platform and e-commerce capabilities.
“When you’re launching in multiple regions of the world, complexity plays into how you simplify the experience for the customer,” he says. “This is where FIS differentiates itself.”
FIS is seeing a pullback in transaction volumes among small bricks-and-mortar retailers. But Norcross says that April was the “low-water mark” and that there are bright spots, including grocery, fast-food, and pharmaceutical spending. “As we come out of the pandemic, we’ll see transaction volumes recover to pre-Covid levels and increase well beyond that,” he says.
FIS is also generating growth with banking services; it’s shifting to a cloud-based platform to help small and midsize banks compete against larger rivals and digital upstarts.
“They’re signing up banks in the middle of the Covid crisis, which is impressive,” says Canaccord Genuity analyst Joseph Vafi, who has a Buy rating on the stock.
FIS is expected to lift revenue 8% next year to $13.7 billion, according to consensus estimates. Cost savings from the Worldpay merger should help boost earnings before interest, taxes, depreciation, and amortization, or Ebitda, 17%, to $6.2 billion. Vafi sees the stock hitting $178, up from a recent $149.
Global Payments had its own big merger last year, buying Total System Services for $25 billion. The deal adds scale and makes Global Payments an end-to-end processor for merchants and banks. The firm now counts 1,300 financial firms as clients, up from about 500 premerger. The company recently partnered with Amazon Web Services to distribute and sell payment services on a cloud-based platform. “We and Amazon are tied at the hip,” says Global Payments CEO Jeffrey Sloan. “We think the partnership triples the size of our addressable market.”
Global’s U.S. merchant acquiring revenue fell 14% in the second quarter as small businesses closed and sales dried up with the pandemic. But Global Payments isn’t as exposed to hard-hit areas like travel and entertainment as the card networks, limiting its declines somewhat.
About 60% of Global Payment’s revenue is fueled by corporate technology spending that has held up well, compared with consumer transactions.
“We’re in a healthier place than we could have imagined,” Sloan says. “We’re seeing a continual recovery, and we haven’t seen any impact from hot spots in the U.S. or markets globally that are open.”
Evercore ISI analyst David Togut calls the stock a top pick and recently raised his price target to $253, 40% above the stock’s recent close of $181. Citigroup analyst Ashwin Shirvaikar isn’t as bullish, maintaining a $207 target, but he calls the stock attractive at 22 times estimated 2021 earnings. Revenue growth could beat forecasts, particularly if a new stimulus package comes through for small merchants.
Ultimately, though, it all comes back to cold hard cash. “Will it return post-Covid?” asks FIS CEO Norcross. “If the answer is no, it will be a significant tailwind for the entire industry.”

LVMH-Tiffany: how the love story between the two giants derailed ( ENGLISH)

Economy
LVMH-Tiffany: how the love story between the two giants derailed
By Emmanuel Botta,
published on 18/09/2020 at 00:00 , updated at 19:27
Tiffany subpoenaed LVMH before judges in Delaware, USA, to force the French group to put the ring on her finger. Tiffany subpoenaed LVMH before judges in Delaware, USA, to force the French group to put the ring on her finger. afp.com/Johannes EISELE
LVMH wants to break off its engagement, arguing in particular of a catastrophic handling of the Covid crisis by Tiffany's executives. They don't want to hear anything.
If love stories end badly in general, to use the tube of Rita Mitsouko, it is much rarer to see one of the two lovebirds drag the other in front of the altar, against his will. Yet that's what Tiffany intends to do by subpoenaing LVMH in Delaware courts. In the 114 pages of his indictment, the New York jeweler tries to show that the world leader in the luxury industry is obliged to respect the commitment made in the fall of 2019 to pass the ring on his finger, with a cheque of more than 14 billion euros. "A wedding hailed at the time by the market, convinced that Bernard Arnault's company could, as usual, sublimate his bride and increase his margin," recalls Arnaud Cadart, portfolio manager at Flornoy and Associates.
An enigmatic intervention by Jean-Yves Le Drian
Las. On September 9th, everything changes. The world's number one luxury company says it is no longer able to carry out the transaction. At first, its communicators put forward a letter sent on 31 August by the Minister of Foreign Affairs, Jean-Yves le Drian. The latter reportedly asked LVMH to freeze the operation until 6 January, in order to help it dissuade Washington from introducing tariffs on products "made in France" on that date. A retaliatory measure against the possible introduction of a Gafa tax. But this missive quickly gives way to a shelling of Tiffany's poor performance during the pandemic, LVMH stressing in a press release "the mediocrity of their management during the crisis, which consisted mainly of widening losses and increasing debts at the expense of the interest of the company."

It would be several months ago that Bernard Arnault would fulminate by watching the results of his bride drift dangerously. In the first half of 2020, Tiffany's sales fell by 37%. Admittedly, the jeweler is not the only one to unscrew. The entire luxury market has been swept away by the health crisis. Bulgari, one of the seventy brands of the LVMH group, even saw its sales tumble by 43% in the first six months of the year. "But the Italian brand remained in the green, when Tiffany recorded $45 million in losses over the period," said a person close to the case. The explanation? For the LVMH teams, it is very clear: the leaders of the New York brand have put their foot down, convinced that the French company would finally pay the losses. Enough to derail the love story.

140 million euros in dividends paid despite losses
But what angered the French luxury giant was the 140 million dividends paid to Tiffany shareholders in the first half of the year, despite the losses. "Especially since we had to take on debt to pay these dividends," said one industry analyst. "Bernard Arnault took this as a real provocation when LVMH, which is doing much better, decided to reduce the dividends of its shareholders by 30%," says one expert on the matter. The New York jeweler recalls that
The last argument that the French group intends to make before the Delaware judges: the MAE (Material Adverse Events) clause included in the agreement signed between the two parties, stipulating that in the event of an exceptional event calling into question the profitability of the operation the nuptials can be broken without compensation. The health crisis is an obvious exceptional case for LVMH. On the Tiffany side, if we recognize the existence of this clause, it is pointed out that the clause has been accompanied by exemptions and that one of them mentions that if the whole market is affected, then that clause becomes null and void. "Tiffany has a concrete contract, that's why they attacked so quickly," said a person close to the case.

Delaware judges will now have to consider the thick marriage contract to decide whether LVMH has the right to let its bride fall or whether, on the contrary, the marriage should be consummated. If, from the latter's point of view, it is explained that the idea is absolutely not to negotiate down the purchase price, a source assures that nothing is excluded. It must be said that Tiffany's management team has a strong interest in the deal: CEO Alessandro Bogliolo alone would have to pocket $30 million if the deal goes through. Envy is always more constant than love..

FT : G4S open to higher bids as security group faces £3bn hostile approach

G4S open to higher bids as security group faces £3bn hostile approach
Largest shareholder Schroders says it would be willing to consider sweeter offer

G4S’s chief executive has indicated that the global security company is open to higher offers even as it seeks to defend itself against a £3bn hostile bid from a smaller Canadian rival.

In an interview almost three weeks after it received a 190p-a-share indicative offer from GardaWorld and just four days after the board met to reject the latest approach, G4S boss Ashley Almanza said the board would “consider any credible proposal. All of the directors are clear we will do what is in the best interest of shareholders and stakeholders.”

The comments came as Schroders, G4S’s largest shareholder, said it was open to a deal at a higher price.

Sue Noffke, head of UK equities at Schroders, said: “As a holder of 10 per cent of G4S shares, Schroders believes the bid from GardaWorld backed by buyout group BC Partners materially undervalues the company and its prospects. 

“However, we are open to a deal at a fair price for G4S shareholders that more accurately reflects peer multiples, synergies and other strategic benefits that an acquirer will gain from.”

Harris Associates, which owns about 9 per cent of the shares, has also said it values the company at “significantly higher” than the 190p-a-share offer “especially given the operational improvements made over the past few years”.

G4S has called the bid “highly opportunistic”. It believes it undervalues the business, which with £7.7bn in revenues is the world’s biggest security company. Under takeover rules, GardaWorld has 28 days from last Monday to table a formal offer.

FTSE 250-listed G4S has offices in 85 countries providing everything from the management of prisons to security for 40 American embassies and the US Pentagon. Its clients range from Florida’s Hard Rock stadium to gasfields in Iraq and work for the UK government securing the recent Covid-19 emergency Nightingale hospitals.

Its smaller Montreal-based rival GardaWorld has made three unsolicited approaches for G4S since June 26, following an aborted move last year. A merger with GardaWorld, which BC Partners valued at C$5.2bn when it bought its 51 per cent stake last year, would create a global security giant.

In an interview with the Financial Times, Mr Almanza defended himself against criticisms of his performance from GardaWorld and BC Partners. They have accused him of presiding over a collapse in the share price of more than a third since he joined six and a half years ago, as well as “a catastrophic loss of faith and reputation”. 

Mr Almanza counters that G4S has paid more than £1bn in dividends since he joined and reduced leverage from 3.5 times earnings before interest, tax, depreciation and amortisation to 2.5 times.

He has also refocused the business on risk consultancy, security guarding and technology, slashing the number of companies in the group from 850 in 2013 to 400. Just six months ago, he disposed of G4s’s business transporting cash in armoured vans, and he believes the group is poised for growth.